Bleg: The role of unions

I see that Bloomberg is stating that Economists are changing their minds about unions – moving from seeing them negatively to seeing them positively.

Unions are an interesting topic, but are also inseparable from a discussion about the relative welfare state and competition policy embedded in a nation.  Nordic and German trade unions are quite different from the trade unions of the US, UK, and Australiasia – and any evaluation of an institution in this way requires a model that allows us to represent the institution relative to other institutions in the economy, the way individuals behaviour relates to that, and how the outcomes for individuals will vary.

So does anyone want to do some of that in the comments below?  I will hopefully be writing up some things on these issues over time – but as a starting point for discussion I will put up this oversimplification.  Unions help to correct issues of insufficient bargaining power for labour, but like any monopoly their existence leads to deadweight losses which hurt those outside of the unionised industry, and are unfair to capital owners in competitive markets.  Evaluating whether more unionisation is good relies on comparing the costs and benefits given in this oversimplification.

Off we go …

Why my work week should be shorter

People, who are in labour force, generally spend one third of their daily time at work. A lot of them find working five days a week quite stressful and there are various reasons for it. I often question myself how the counterfactual of my work-life balance might look like to keep me motivated at work as well as to allow me to spend time with family/friends and devote leisure to my favorite hobbies.

An option that recently popped-up in my mind was about having a four day work week with the remuneration staying unchanged. This idea has already been implemented by a kiwi company Perpetual Guardian which is trailing to raise their productivity.

Let’s consider why the four day work week could be beneficial for both employees and employers.

Employee benefit

An extra day off normally improves our work-life balance – or in other words it allows us to spend more time on leisure (potentially also reducing work-related stress). For some people the cost of leisure is very high. Particularly, this cost is high for sole parents who have scarcity of time and support to spend on their children compared to the couples. Sole parents are also more disadvantaged compared to singles, by having extra responsibilities on their dependents.

What about the transportation burden? For some people, commuting is a big challenge, especially for those who live far away from the workplace. An extra day off would cut the transportation costs and would allow to alternate commuting time with additional leisure time.  Daily long hours on transportation are an external cost placed on the employment process which has a dead-weight loss, which can be reduced by needing to travel less often.

We probably all agree that having an extra day off would improve our work-life balance regardless of our family composition or the length of commuting.

So what happens if “the four day work per week” policy is widely implemented?  Is it a fixed day, should it be up to the employee to choose, or should there be some type of random rotation introduced?

My view is that the weekdays that employees are off should be rotated among workers. If not, then a Friday becomes another Saturday. In this case, everybody has a day off, and problems with “dentist visits” or “children’s school visits” remain unsolved. Adding another Saturday/Sunday to an employee’s life is great, but the marginal improvement is much less than having the day off with rotation.

Employer benefit

At first glance, the approach of paying same wage for 32 hours a week instead of 40, seems expensive. But have we already considered the productivity increase of employees?

An earlier post on  TVHE has already shown that the productivity drops as the number of hours of work rises. A Scandinavian research also demonstrated how the six-hour work day increases productivity here.

“A year’s worth of data from the project, which compares staff at Svartedalens with a control group at a similar facility, showed that 68 nurses who worked six hour days took half as much sick time as those in the control group. And they were 2.8 times less likely to take any time off in a two-week period”.

As a result, higher productivity would at least reduce the cost – if not completely cancel it out.

Although this does raise the question “if firms can get the same output from you in 32 hours instead of 40, and thereby can reduce their costs of operating even keeping wage payments the same (due to other variable costs), then why aren’t they?”.  So do you think there are reasons why firms may be failing to do this, even if the cost or low or it is even in their own interest?


Often time costs us more than million dollars as the happiness cannot be quantified or bought by money. Any company caring to keep their trained specialists around might want to be ready to cover this cost.

A successful outcome of the Perpetual Guardian’s trial on four day work could encourage other companies in NZ to think about how to widely apply this policy among their employees.

I wonder what your thoughts on this topic are. Do you think shifting from five to four days work might impact the NZ economy significantly?

Monopsony in the NZ labour market?

As part of catching up with what has been happening in New Zealand I am reading what I can find from New Zealand economists.  In doing so I wandered onto this piece by Shamubeel Eaqub of Sense Partners.

Firms are finding it hard to recruit, as the pool of qualified job seekers who are not already employed is so small. … (But) Wages haven’t risen in tandem. Wages have been increasing in some sectors like construction, but have been stagnant in others. … One explanation for this may be a lack of competition in a local labour market.

The increase is from a low level and evidence from the US on minimum wages suggest such increases don’t cost jobs, but improve the incomes for the working poor.

So there are two claims embedded in this that I want to think about a bit here: Competition through monopsony and the efficacy of a higher minimum wage in the NZ context.

Is there suggestive signs of monopsony in NZ’s labour market (Tl;dr is YES and NO), does this imply minimum wages could increase employment (Tl;dr is YES if monopsony holds), does this suggest higher minimum wages would increase, or at least not reduce, employment (Tl;dr is probably NO at current levels).  Although we will be going through a bit more than this in what has turned into a long post.  Let’s do this.

Read more

The male wage premium

Wage inequality between men and women has split opinion in the UK after the Government last week announced that all large firms would have to publish the gap in average earnings between their male and female employees. In light of that debate, today’s HESA data on the pay of recent graduates is interesting. It shows that female graduates are slightly more likely than male graduates to be in work a year after graduating, but they earn considerably less.

Of course, that’s not necessarily a causal link Read more

Do old people hurt growth?

A new paper (PDF) claims that ageing populations will hinder growth by both dis-saving and dragging down innovation, thus reducing productivity. Using a VAR model, they relate the age structure to measures of growth, saving, investment, and other macroeconomic variables over the 1990-2007 period. They use those coefficients to predict the effect of demographic change on growth rates in the current decade. The results are dramatic, predicting that an ageing population will knock over a percentage point off some countries’ growth rates.

In a ray of light, this morning’s FT (£) reported a study of over 15,000 German employees that examined the relationship between ageing and productivity. One of the authors is quoted saying:

As workforces age, employers are concerned that productivity will decrease. That is not so. What matters is not chronological age but subjective age.

The research suggests that older people are systematically excluded from training activities, and are relegated to less creative and meaningful work, which renders them less productive. As the workforce ages, that may begin to change. As it changes, the relationship between growth and age structures is likely to weaken.

Performance pay for the public sector?

In December last year The Work Foundation released a comprehensive review of performance-related pay in the public sector:

PRP schemes can be effective in improving outcomes across the three public services for which evidence is available (health, education and the civil service), although the central conclusion is that the outcomes from PRP are mixed, which much dependent upon organisational and occupational context and scheme design and implementation. Where positive effects have been found, effect sizes are sometimes small and may also be short-lived. As well as evidence gaps across much of the public services, the weight of evidence also varies, with the more robust evidence coming from education and health rather than the civil service. Cost-effectiveness data to assess the value for money of PRP interventions is also rare.

The implication is that performance-related pay isn’t a quick fix: it requires careful development to fit it to the context, and organisations might take a while to adapt to it and see benefits. Without more examples in the public sector it isn’t possible to say whether it will prove cost-effective.